On February 11, 2020, in the matter of CLMS Mgmt. Servs. Ltd. P’ship v. Amwins Brokerage of Georgia, LLC, 3:19-CV-05785-RBL (W.D. Wash. Feb. 11, 2020), the US District Court in the Western District of Washington granted certification pursuant to 28 U.S.C. § 1292(b) of the court’s earlier order of December 26, 2019, in which the court held that the Convention on the Recognition of Foreign Arbitral Award, Art. II, Sec. 3 is “self-executing,” and not subject to preemption under the McCarran-Ferguson Act – and thus not preempted by Washington statute.
The Court’s Order, granting defendant’s motion to enforce an arbitration clause in the policy of insurance at issue, analyzes the interplay between the Federal Arbitration Act (FAA), the McCarran-Ferguson Act, and Art. II, Sec. 3 of the Convention. Although the FAA normally governs the enforceability of arbitration clauses, in the insurance context the McCarran-Ferguson Act, which creates a system of “reverse-preemption” for insurance law, must also be considered. The Court examined decisions by Washington state courts holding that, under the McCarran-Ferguson Act, Wash. Rev. Code 48.18.200 – which prohibits the enforcement of arbitration provisions in insurance contracts – preempts Chapter 1 of the FAA.
However, the Western District of Washington held that the same is not true of Chapter II of the FAA and ruled that Chapter II section 3 is self-executing, and thus not subject to preemption under the McCarran-Ferguson Act. The court found the reasoning of the US District Court for the Central District of California’s reasoning in the matter of Martin v. Certain Underwriters of Lloyd’s, London, to be persuasive. There, the court stated that Section 3’s use of “the verb ‘shall’ . . . expressly directs courts to enforce arbitration agreements” and thus gives Section 3 “automatic effect.”
In granting certification for immediate review, the Western District recognized that federal circuits are split and there is “considerable disagreement between courts around the country about whether and why the Convention preempts state laws like RCW 48.18.200,” and that the Ninth Circuit has not ruled on this issue. Accordingly, this will be a matter of first impression for the Ninth Circuit.
Disclaimer: Any opinions expressed in this blog are those of the author and do not necessarily reflect those of Soha and Lang, P.S. or its clients.